The trade-creation effect refers to:
a. the outcome of a preferential trade agreement that reduces economic efficiency by shifting production to a higher-cost producer.
b. the effect of an increase in the quantity of imports relative to the effect of a tariff applicable to all imports.
c. the outcome of a preferential trade agreement that allows a country to obtain goods at a lower cost than is available at home.
d. the effect of a diversion of production to a country that has comparative advantage due to a free trade agreement.
e. the effect of a decrease in the quantity of exports relative to the effect of a subsidy applicable to all exports.
QUESTION 2Assume that recent oil exploration coupled with a fall in demand reduced petroleum imports of a nation to zero. We can expect:
a. the domestic price of petroleum to fall below the world price.
b. the world price of petroleum to fall to equal the domestic price.
c. petroleum exported by the domestic producers to increase.
d. petroleum exported by the domestic producers to decrease.
QUESTION 3In the short-run, a perfectly competitive firm can earn normal profits or above normal profit but it cannot incur losses.
a. True
b. False
Indicate whether the statement is true or false
QUESTION 4Which of the following is not a necessary characteristic of a successful price discriminator?
a. It has market power.
b. It can prevent the resale of the product.
c. Its marginal costs of production differ across customers.
d. Willingness to pay for its product differs across customers.
QUESTION 5Trade diversion reduces worldwide efficiency, because:
a. production is diverted to the country with comparative advantage.
b. production is diverted away from the country with comparative advantage.
c. unnecessary trade restrictions are created in the economies.
d. consumption is diverted to the country having inadequate demand.
e. the cost of transhipment of the goods increases thus raising their prices in the world market.
QUESTION 6Assume that the government of a nation rations the crude oil available to car owners each month which reduces the overall demand for petroleum. However, the nation continues to import oil from the world market. Which of the following will be observed in the oil market?
a. The world price of petroleum would decline.
b. The domestic price of petroleum would decline.
c. The domestic price of petroleum would increase.
d. The world price of petroleum will remain unaffected.
QUESTION 7If at the profit maximizing level of output, the AR curve lies below the ATC curve in the short run, the firm is earning positive economic profit.
a. True
b. False
Indicate whether the statement is true or false
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